Happy Birthday ACA!!

The Affordable Care Act turns five years old today. I know what you’re thinking:

It doesn’t seem like five years already, and

this is nothing to be excited about.

But we do still have jobs, and that is definitely worth celebrating. When this thing was signed into law back in 2010, most agents worried they’d be out of the business by 2014, but now, five years later, it’s clear that brokers are here to stay – if they learn how to adapt.

On such a momentous occasion, it only seems appropriate to take a look back – and a look forward. The truth is that we’ve come a very long way in the past five years, but we still don’t have all the bugs worked out, and many believe we never will. Nonetheless, our clients need help, so we must continue to search for both short-term fixes and longer-term solutions.

We’ll get to the solutions in a little bit. Let’s start, though, with a little reminiscing…

A Bouncing Baby Bill

When the health reform legislation was originally signed into law, I created a presentation called “Meet Bill, Your New Boss.” My wife’s sister Elvia, an art teacher in the Dallas Independent School District, created some drawings of our character Bill, which was based on the old Schoolhouse Rock “I’m just a bill” cartoons and was certainly a lot easier to say than Patient Protection and Affordable Care Act or even the short version, PPACA. Here’s Bill as a toddler:

Bill was a terrible baby – he caused trouble right from the start. So much so that a lot of people wanted to kill Bill (and they still do).

Here are a few of the early problems this little brat caused.

Employers and individuals had to decide whether they wanted to stay “grandfathered” or not. President Obama had promised us that if we like our plan we can keep it, and, sure enough, there was a grandfathering provision in the law. The only problem is that it didn’t really allow for the normal “tweaking” of plans at renewal time – you had to really like the plan you had because you were stuck with it year after year if you wanted to stay grandfathered.

We also lost several carriers in the child-only market after HHS confirmed that they couldn’t turn down children with pre-existing medical conditions. That just goes to prove that guaranteed issue without an individual mandate is a no-go.

And when Bill reached his terrible twos, brokers across the nation saw their commissions cut due to the minimum Medical Loss Ratio requirement that went into effect in 2011. It was enough to make you cry.

We also saw HSA penalties increase in 2011, and over-the-counter drugs were removed from the list of eligible expenses for HSAs, HRAs, and FSAs.

It wasn’t all bad, though. Young invincibles – or adult children as we began to call them (sounds like an oxymoron, doesn’t it?) – were able to stay on their parents’ health plan until age 26, significantly increasing the number of twenty-somethings with health insurance. And small employers had the opportunity to receive up to a 35% tax credit if they offered health insurance to their employees, though there were few takers compared with the government’s expectations.

Growing Like a Weed

Bill grew up quickly. Sort of like dog years, one human year is a long time for the ACA. As Bill entered his teens, it became clear that things weren’t going exactly as planned.

Some provisions were repealed; others just sort of fizzled out. Following lots of complaints from business groups, for instance, the government made the decision not to make small employers issue 1099s to anyone that they paid $600 or more over the course of the year (including other businesses), and W-2 reporting of the value of employee benefits was made optional for small employers.

Struggling to Fit In

As Bill entered young adulthood, he remained unpopular – it’s like he couldn’t do anything right. Even more provisions went away, including the “voucher” program, which would have allowed employees to bail on their group health plan and use the employer’s money to purchase coverage in the individual market, pocketing the difference if they found a cheaper plan.

The administration also scrapped plans to create a voluntary long-term care insurance program, a decision that was made official a few months later when the CLASS Act was repealed by Congress. And funding was cut significantly to the CO-OP program, which was designed to create some competition for the “big insurance companies” by offering low-interest loans to start-up non-profit insurance co-ops across the nation.

Bill did dodge a couple bullets along the way, though – the Supreme Court ruled in June, 2012 that the individual mandate was, in fact, constitutional under Congress’ authority to tax, and President Obama defeated Mitt Romney, who had vowed to repeal and replace the law, in the Presidential election.

Here to Stay

Following the election, Bill seemed to be untouchable. It was becoming more and more clear that he was going to survive and that the health insurance industry would never be the same.

HHS was busy writing the rules and regulations to implement the massive health reform law, and the IRS was doing the same. As the rules were issued, brokers and their clients quickly developed strategies to try to get around them.

Life Doesn’t Always Go As Planned…

During the regulatory process, though, things began to unravel a bit. The exchange notice, which was supposed to go out by March 1st, was postponed until the fourth quarter, and that was just the first of a long string of delays in 2013. In July, the employer mandate was pushed back by a year. Soon after that, we learned that the employee choice component of the SHOP exchange was also delayed, as was the online enrollment feature. And in the fall, President Obama announced that individuals and small employers could hang onto their existing plans for another year, with CMS adding two more years to this transitional plan option, allowing some policyholders to avoid the new requirements until October, 2017.

The biggest and most embarrassing thing for both Bill and the administration, though, was the completely botched rollout of Healthcare.gov, the Federally-Facilitated Marketplace website, as well as a number of the state-based exchanges. It gave late-night comedians plenty of good material and is largely to blame for HHS Secretary Kathleen Sebelius’ unexpected resignation at the end of the ACA’s initial enrollment period.

Large and In Charge

With such a rocky start, few would have predicted that the enrollment season could possibly be a success, but it was. Sign-ups exceeded the administration’s goal by a couple million and surprised nearly every analyst and political pundit. As we entered 2014, enrollments were surging, the premium tax credits became available, the individual mandate went into effect, and most importantly, all plans became guaranteed issue. Bill was now clearly the boss.

One year later, we’ve just concluded our second enrollment period, which had no major hiccups. Individual enrollments now top 11.7 million, and the SHOP exchange is up-and-running, though the saying “if you build it, they will come” doesn’t yet seem to apply to the small business marketplace.

Still, the administration has a lot to be proud of. The number of uninsured is at its lowest point in several years, and the law is growing in popularity. Health care costs have also slowed, and the CBO continues to revise its cost estimates downward. In short, the health reform law seems to be working, and that’s about the best birthday gift Bill could possibly wish for.

Bill’s Mid-Life Crisis

Of course, there are still plenty of critics and plenty of threats. As Bill turns five, he finds himself in the middle of a lawsuit, and with Ted Cruz tossing his Dr. Seuss hat into the ring, health reform promises to be a huge campaign issue for the third presidential election in a row.

With so much negative attention, Bill can’t help but look back and wonder if he could’ve or should’ve done a few things differently. Some even worry he’s having a mid-life crisis.

The biggest threat right now is the King v. Burwell Supreme Court Case, which will decide the fate of the premium tax credits and, to a large extent, the individual and employer mandates. If the Court tosses out the tax credits in FFM states, most people will be exempt from the individual mandate and many large employers will dodge the penalties as well since they’re triggered by an employee receiving a subsidy. Bill should know by late June if he gets to keep his job in states using the Federally Facilitated Marketplace.

What’s Next for Bill?

Assuming Bill makes it through the next few months and survives the Supreme Court case, he’ll likely make it to old age and have an impact for a long time to come because, no matter who’s in the White House, “repealing and replacing” the bill will be an uphill battle. The task for agents and brokers is to figure out just what the impact will be and to develop strategies to help their clients…

As Bill continues to mature in years, more changes are on the horizon. In 2020, for instance, the Medicare Part D “donut hole” will close as much as it’s going to, with seniors responsible for about 25% of the cost of drugs. In 2018, the Cadillac tax, a 40% surcharge on high valued health plans, goes into effect. But the three biggest changes occur in the next two years:

In 2016, the employer mandate transition relief ends, making all applicable large employers (with 50 or more full-time equivalents) subject to the shared responsibility requirement.

Also in 2016, groups with 51-100 total employees will be re-defined as small employers, making them subject to the many market reforms applicable to the small group market.

And in 2017, the transition plan option for individuals and small employers goes away, so these plans that were able to delay the impact of the law will have to play by the new benefit & rating rules.

What does this mean for brokers?

Many of the changes up to this point, and most of the changes to come, create two primary problems for our clients: premiums and penalties. Skyrocketing premiums have been a problem for a long time, and the Affordable Care Act has only accelerated the rate of premium growth. In fact, the way it looks now, most health insurance policies may be “Cadillac plans” by 2018.

But premiums aren’t the only problem – individuals are now required to have minimum essential coverage or pay a penalty, and employers that do offer group health insurance face a penalty if their plans are either unaffordable or fail to provide minimum value.

So, even though the popularity of the law is increasing, a lot of our clients are still asking the question “how do we get out of this?”

Brokers do have a lot of strategies, and we’ve been talking about those for the past few years: increase the deductible, drop the copays, ask employees to pay more, stop paying for dependents, ditch the spouse, switch the renewal date, self-insure, offer a skinny plan, scale back on ancillary, or even drop coverage altogether.

All of these strategies have a place, but we need to recognize the fact that they are not long-term solutions because they don’t address the underlying issue – the cost of health care – and because they create additional problems for our clients. If we charge employees more, for instance, we may have participation issues. If we increase the deductible, employees may not appreciate their benefits. If we drop the copays for doctor visits, members may delay necessary care and wind up in the emergency room.

So what this means for brokers is that coming up with strategies to help employers avoid a penalty or keep premiums under control is just the first step, and most of your competitors are recommending the exact same strategies that you are for those two issues. The real opportunity, though, is in addressing the second-level problems – the side effects that are created by the first set of survival strategies.

We’ll continue this discussion and I’ll share some ideas to help solve the level two problems in future posts, so stay tuned.

Thank you Elvia!

A special thanks to Elvia for the great artwork. If you have a project you’d like to talk with her about, you can connect with her here: www.linkedin.com/in/elviavigil/en